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Exercise 6. Consider these long-term investment data: The price of a 10-year $100 par zero coupon inflation-indexed bond is $84.49. A real-estate property is expected
Exercise 6. Consider these long-term investment data: The price of a 10-year $100 par zero coupon inflation-indexed bond is $84.49. A real-estate property is expected to yield 2% per quarter (nominal) with a SD of the (effective) quarterly rate of 10%. Assume an (effective) annual risk-free rate of 3.55%. (a) Use the appropriate formula and Excel Solver or Goal Seek to find the SD of the continuously compounded annual excess return on the real-estate investment. (b) What is the probability of loss or shortfall after 10 years?
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